COMPREHENSIVE PROBLEMS Select problems are available in Connect 81. Joe operates a business that locates and purchases specialized assets for clients, amono connedt other activities. Joe uses the accrual method of accounting but he doesn't keep any significant inventories of the specialized assets that he sells. Joe reported the follow financial information for his business activities during year 0. Determine the effect of each of the following transactions on the taxable business income. a) Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $12,000 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $8,500. b) Joe paid $180 for entertaining a visiting out-of-town client. The client didn't dis c) On November 1, Joe paid $600 for premiums providing for $40,000 of "key d) At the end of year 0, Joe's business reports $9,000 of accounts receivable. Based cuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year. man" insurance on the life of Joe's accountant over the next 12 months upon past experience, Joe believes that at least $2.000 of his new receivables will be uncollectible. e) In December of year 0, Joe rented equipment to complete a large job. Joe paid $3,000 in December because the rental agency required a minimum rental of three months ($1,000 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease. f) Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $300 for airfare, $350 for lodging. $250 for meals, and $150 for enter tainment (Joe provided adequate documentation to substantiate the business purpose for the meals and entertainment). Joe requires the employee to account for all expenditures in order to be reimbursed. ) Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. Last month, the business vehicle broke down and he forced to use the BMW both to travel to and from the factory and to visit sites. He drove 120 miles visiting work sites and 46 miles driving to and from factory from his home. Joe uses the standard mileage rate to determine his auto- related business expenses. work the h) Joe paid a visit to his parents in Dallas over the Christmas holidays. While he Joe paid to the was in the city, Joe spent $50 to attend a half-day business symposium. S200 for airfare, $50 for meals during the symposium, and $20 on cab fare symposium
